8/11/2009 @ 12:00AM

Wal-Mart's Backward Business Revolution

Wal-Mart
is a company polarized by controversy and success. On the one hand, the mega-retailer is vilified for transforming the nature of international trade and abusing employees. On the other hand, strategists tip their hats to a business model that propelled the retailer from small-town obscurity to commercial super power and attracted even one of the staunchest democrats, Hillary Clinton, to its board.

Nelson Lichtenstein’s The Retail Revolution: How Wal-Mart Created a Brave New World of Business is the latest deconstruction of the monster retailer to hit the shelf alongside titles including The Wal-Mart Effect, To Serve God and Wal-Mart and Wal-Mart: The Bully of Bentonville. As a labor historian at the University of California, Santa Barbara, Lichtenstein’s
Wal-Mart
expertise carries weight. He organized the first academic Wal-Mart conference in 2004, and thereafter edited a compilation of Wal-Mart essays published in 2006. In Retail Revolution, Lichtenstein provides his own analysis of the behemoth merchant.

At first glance, the reader might question, why another book on Wal-Mart business and logistics, why now? But Retail Revolution is more than a timeline of Wal-Mart’s path from discounter in the Ozarks to mega player in the global marketplace. The book is most interesting for sociological insight into how Wal-Mart rose to success–not despite its rural origins, but by capitalizing “backward” southern values.

Many business moguls have risen from humble beginnings in “out of the way places” to corporate success in the big city. Sam Walton, however, built his empire without ever leaving rural America. “His retailing genius,” Lichtenstein argues, “arose out of a capacity to turn to his advantage the isolation, poverty and hostility to Yankee commercial ways.”

Lichtenstein traces the patriarchal hierarchy embedded in Wal-Mart culture to its origins in rural southern civilization. As the proprietor of the mid-1900s depended on the subordination of other members in the household (mainly women), the Wal-Mart manager is reliant on the commitment of primarily female subordinates. It is difficult to gauge to what extent this drove Walton’s employee strategy, Lichtenstein asserts, “but in the decades of blistering expansion that began in the early 1970s, Wal-Mart management effectively capitalized upon these long-held rural values.”

From the start, women, who made up 70% of the Wal-Mart workforce, felt at home in Wal-Mart, perhaps because their position as sales clerks was similar to their place in the home. Furthermore, many were just plain grateful to have a job. “Walton’s stores were godsends to the farm wives and daughters displaced by agricultural revolution.”

A Wal-Mart publicity photo from the 1970s, eight years into operation, confirmed “the opportunities that awaited young men in a world where patriarchal authority seemed entirely natural.” A well-suited man, clearly the store manager stands at the center of attention surrounded by an energetic group of employees. The male-female divide is acutely visible in this crowd: 45 women all beam from behind their blue sales clerk vests, while the 12 or so men all don ties, representing their status on the managerial track.

Although willing to make only the minimal effort to keep employees happy, Wal-Mart recognized that their loyalty was critical. “The enthusiasm of Wal-Mart associates towards jobs is one of the company’s greatest assets.” Lichtenstein quotes from the 1973 annual report.

The company maintained this loyalty by replacing concrete benefits such as health care, pensions and higher wages with low-cost intangibles. Wal-Mart gave employees a fancy title, “associate,” and broadcast an “open door policy,” which invited workers to approach management with any concerns. Each of these steps came at no cost to the company, but built morale and pride among workers.

From the lowly part-time saleswomen to the degree-carrying manager, Wal-Mart sought out workers whose career expectations were capped. When it came to recruiting new talent, Wal-Mart did not wine and dine the top over-achieving students who were foaming at the mouth to advance and succeed. Rather, the company sought out the B and C students at denominational colleges and branch campuses of state universities, targeting first-generation graduates whose career goals and expectations might be lower.

At the same time, Wal-Mart relied heavily on in-house propaganda. Posters, videos and the internal magazine Wal-Mart World conditioned workers themselves to take an anti-union stance or to revalue compensation and benefits. Lichtenstein recalls one such poster, which hung in the employee lounge and recalculated the $4.60 per-hour wage to include benefits such as FICA, life insurance and stock purchases. “So the associate really earns a total of $6.015 per hour.” the poster proclaimed.

In reality, whether employees complained or not, the unbalanced labor conditions created an economic development paradox: Wal-Mart produced valuable taxable revenues, only to force its employees to draw on publicly funded programs including food stamps, Medicare CHIPs and subsidized housing. Lichtenstein sites a Berkley study, which found that Wal-Mart employees in California “cost state taxpayers about $86 million annually because Wal-Mart employees utilized an estimated 40% more in taxpayer-funded health care than the average.”

But it makes for good business. Competitors have tried emulating Wal-Mart’s business model, but, as Lichtenstein points out, the attributes that have made Wal-Mart so successful were so ingrained in the culture and specific to the company that they have not necessarily paved a new path to success for other retailers. Rather, Wal-Mart may have revolutionized the industry by forcing everyone else–workers, competitors, suppliers and partners–into reforming their own practices just to keep up.

There is a dryly academic feel to Lichtenstein’s prose as he gets into the heavy discussion of the strategies that empowered the chain retailer, such as cutting out the middlemen and shifting costs and risks onto the manufacturer. He details how Wal-Mart brought warehousing, distribution and trucking in-house, built new stores around distribution centers, harnessed retail information through high-tech barcode and product-tracking software, and revolutionized the relationship between merchant and vendors. But for all the detail, 45-word sentences demand the reader put in some overtime labor.

While Retail Revolution might be the most informative piece of Wal-Mart literature, Lichtenstein is over-cautious in his argument. When it comes to a company marked by such bold strategies, perhaps Lichtenstein might have broken out into a more daring point of view to match.

Lily-Hayes Kaufman is an M.B.A. candidate at the Harvard Business School.